AutoZone (AZO) Faces Cybersecurity Breach: Is it Time to Sell?

AutoZone, Inc. (AZO), a leading retailer and distributor of automotive replacement parts and accessories in the United States, announced that it was hacked by a ransomware gang in May this year. Bleeping Computer reported that AZO’s data stores were breached, with the personal information of approximately 185,000 customers leaked.

The Clop ransomware gang took responsibility for this cyberattack, with hackers uncovering susceptibilities in the file transfer application MOVEit.

Several other affected organizations include the Louisiana Department of Motor Vehicles, the State of Maine, British Airways, and the New York City public school system. As per the report, the total financial damage totaled around $12 billion, with estimates indicating that at least 62 million people were affected by this data leak.

The data leaked by cybercriminals is around 1.1GB in size, containing employee names, email addresses, tax information, parts supply details, payroll documents, Oracle database files, production and sales information, data about stores, and more. No customer data appears in the leaked files, Bleeping Computer noted.

AutoZone informed the U.S. authorities last week about this data breach. It took the auto company nearly three months to determine what data was stolen from its systems and who had been impacted and required to be notified.

“AutoZone became aware that an unauthorized third party exploited a vulnerability associated with MOVEit and exfiltrated certain data from an AutoZone system that supports the MOVEit application,” read the letter from AZO. The company further added that it is “not aware” of any instances where a customer's personal information was used to conduct fraud.

However, AutoZone will provide its affected clients with a year of free credit monitoring software. This will allow them to track potential fraud and suspicious activities related to their identity and credit.

Despite this news, AZO’s shares have gained more than 6% over the past month and nearly 5% over the past six months.

Now, let’s discuss several factors that could influence AZO’s performance in the near term:

Growing Need for Auto Parts

The global auto parts market is expected to reach $1.10 trillion by 2030, growing at a CAGR of 6.8%. One of the primary factors driving the auto parts market is the increasing demand for auto vehicles worldwide. Global motor vehicle production has been rising steadily, with around 85 million vehicles produced in 2022, up nearly 6% from 2021.

The demand for auto parts has increased in tandem with this production boom. Further, the growing shift toward electric and hybrid vehicles and the manufacturing of environmentally friendly vehicle parts because of an enhanced focus on sustainability and environmental issues are propelling the market’s expansion.

Additionally, the significant surge in e-commerce platforms has a major impact on auto parts distribution and sales, providing more access for customers. Also, the rising popularity of automotive customization and the introduction of advanced technologies, such as navigation systems, infotainment systems, and advanced driver assistance systems, will boost the market’s growth.

Therefore, the growing demand for auto parts and accessories is a primary tailwind for AZO stock.

Robust Financials

For the fourth quarter that ended August 26, 2023, AZO reported net sales of $5.69 billion, beating analysts’ estimate of $5.61 billion. This compared to net sales of $5.25 billion in the same quarter of 2022. Its gross profit grew 8.8% from the year-ago value to $3 billion.

The auto parts operating profit (EBIT) came in at $1.22 billion, an increase of 10.8% from the prior year’s quarter. Its net income rose 6.8% year-over-year to $864.84 million. The company posted net income per share of $46.46, compared to the consensus estimate of $45.23, and up 14.7% year-over-year.

For the fiscal year 2023, the company’s net sales increased 7.4% year-over-year to $17.46 billion, while its gross profit rose 7.1% from the previous year to $9.07 billion. Its operating profit grew 6.2% year-over-year to $3.47 billion. The company’s EBITDAR increased 7.6% from the prior year to $4.47 billion.

In addition, AZO’s net income rose 4.1% year-over-year to $2.53 billion, and its net income per share came in at $132.36, an increase of 12.9% year-over-year. Its adjusted after-tax ROIC was 55.4%, up from 52.9% a year ago. As of August 26, 2023, the company’s cash and cash equivalents were $277.05 million, compared to $264.38 million as of August 27, 2022.

Regarding its strong performance delivered in the fourth quarter and fiscal year 2023, AZO’s Chairman, President, and CEO, Bill Rhodes, commented, “Our customer service and trustworthy advice are what continue to differentiate us across the industry, and our AutoZoners’ commitment to delivering exceptional service has allowed us to continue to deliver strong financial results.” 

“While we turn our focus to performance in the new fiscal year, we will remain committed to prudently investing capital in our business, and we will be steadfast in our long-term, disciplined approach to increasing operating earnings and cash flows while utilizing our balance sheet effectively,” Rhodes added.

Share Repurchase

Under its share repurchase program, AZO repurchased 403 thousand shares of its common stock during the fourth quarter at an average price per share of $2.502, for a total investment of $1 billion. For the fiscal year 2023, the auto company repurchased 1.5 million shares of its common stock for a total investment of $3.7 billion.

Since the inception of this share repurchase program, the auto parts retailer has repurchased a total of about 154 million shares of its common stock at an average price of $219, for a total investment of $33.8 billion. At the year's end, the company had $1.8 billion remaining under its current share repurchase authorization.

Share buybacks might enable the company to generate additional shareholder value.

Expanding Store Footprint

During the quarter ended August 26, 2023, the auto parts giant opened 53 new stores in the U.S., 27 new stores in Mexico, and 17 in Brazil, for a total of 96 net new stores. For the year 2023, the company opened 197 net new stores. The company’s inventory also increased due to new store growth.

As of August 26, 2023, AutoZone had 6,300 stores in the U.S., 740 in Mexico, and 100 in Brazil, for a total of 7,140 stores.

Impressive Historical Growth

AZO’s revenue and EBITDA grew at respective CAGRs of 11.4% and 11.1% over the past three years. Its EBIT increased at a CAGR of 11.6% over the same period. Moreover, the company’s net income and EPS rose at CAGRs of 13.4% and 22.5% over the same timeframe, respectively.

In addition, the company’s total assets improved at a 3.5% CAGR over the same period.

Favorable Analyst Estimates

Street expects AutoZone’s revenue for the fiscal 2024 first quarter (ending November 2023) to increase 5.1% year-over-year to $4.19 billion. The consensus EPS estimate of $31.16 for the ongoing quarter reflects a 14.6% year-over-year rise. Moreover, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all four trailing quarters.

AZO’s revenue and EPS for the fiscal year (ending August 2024) are expected to grow 7.5% and 12.58% year-over-year to $18.76 billion and $149.01, respectively. For the next fiscal year, Street expects the company’s revenue and EPS to increase 3.7% and 9.3% from the previous year to $19.45 billion and $162.93, respectively.

Solid Profitability

AZO’s trailing-12-month gross profit margin of 51.96% is 46.5% higher than the 35.71% industry average. Likewise, the stock’s trailing-12-month EBITDA margin and net income margin of 22.75% and 14.48% are significantly higher than the industry averages of 11.04% and 4.44%, respectively.

Furthermore, the stock’s trailing-12-month ROTC and ROTA of 34.04% and 15.82% favorably compare to the respective industry averages of 6.01% and 3.97%. Also, its trailing-12-month levered FCF margin of 8.83% is 71.4% higher than the industry average of 5.15%.

Bottom Line

AutoZone reported positive earnings and revenue surprises for the last reported quarter. Further, the company’s prospects look highly promising, driven by a diversified product portfolio to meet robust demand for auto replacement parts and accessories.

The auto giant also continues to expand the physical footprint of its stores to serve its ever-growing customers worldwide.

Despite the news of its data stores getting breached in a cyberattack earlier this year, AZO could be an ideal investment now, given its robust financials, higher-than-industry profitability, and bright growth outlook.

Analyzing Why ReNew Energy (RNW) Crushed Earnings


Energy suppliers are poised to receive increased interest as we navigate various macroeconomic influences and geopolitical disruptions, each bearing significant relevance to energy supply costs and profitability. Renewables have an element of unpredictability to the scenario, potentially distinguishing themselves from conventional energy providers regarding pricing and core offerings.

Headquartered in London, United Kingdom, ReNew Energy Global Plc (RNW) has marked its footprint in the Indian market, emerging as a noteworthy player in the renewable energy sector. This renewable energy producer primarily focuses on wind and solar energies, illustrating a concerted effort towards sustainable solutions. As of September 2023, its clean energy portfolio stands at ~13.8 GW of capacity.

The company has showcased consistent and improved performance much to the satisfaction of its shareholders, such as displayed in its impressive second-quarter results that substantially surpassed top and bottom-line estimates.

Looking ahead, RNW plans to commission between 1.75 GW and 2.25 GW by the end of the fiscal year 2024. Management projects EBITDA growth of ~35%+ per share in the fiscal year 2025.

Despite contending with the adverse impacts of the pandemic, RNW has persevered unwaveringly towards its financial objectives. With a profit after tax of $45 million in the second quarter, the company recorded one of its highest profits.

India's renewable energy sector is thriving, propelled by a rising power demand, escalating renewable energy auctions, and shifting toward complex projects. Positioned at the vanguard of this transformative revolution, RNW maintains capital discipline while skillfully leveraging market opportunities.

The company thrives under the swift escalation in power demand and energy supply shortfalls. Softening solar module prices paints a promising backdrop for this renewable energy developer.

A critical trend identified within the industry is the escalating complexity of projects and customized solutions tailored to distribution companies' specifications. This evolution presents an advantageous opportunity for RNW, a pioneer with the most comprehensive wind development portfolio. Their leadership status empowers them to address the distinct electricity supply profiles required accurately.

RNW has attained important projects through power purchase agreements (PPAs) and letters of awards (LoAs). These include a PPA with GUVNL, Gujarat's Distribution Entity, for a 400-megawatt capacity and receipt of LoAs for an additional 2.9 gigawatts. Such undertakings will significantly bolster RNW's long-term earning potential upon successful completion.

RNW is proactively exploring opportunities to broaden its portfolio to meet the rising demand for renewable energy. The company remains dedicated to its capital allocation and strategies that foster value creation.

This commitment serves as testimony to the company's knack for attracting investments and strategic partnerships at beneficial valuations. In slightly above two years, RNW drew in an impressive $565 million via asset recycling, facilitating the use of these funds towards more lucrative opportunities.

However, not all seems well for the alternative energy company, and hence, investors could exercise caution moving forward.

RNW’s trailing-12-month Return on Common Equity (ROCE) of 2.75% is lower than the industry average of 9.10%. Also, the company resorts to substantial amounts of debt to finance its business operations. For the fiscal second quarter that ended September 30, 2023, its gross debt was $7.07 billion. This results in a strikingly high debt-to-equity ratio of 4.74.

A lower ROCE could imply that a company could still improve its returns through leverage, considering it has low debt levels. For a company like RNW, which pairs low ROCE with considerable gross debt, investors may want to proceed cautiously, given the heightened risk involved.

Another critical measure of a company's financial health is its current ratio, gauging its capability to meet short-term liabilities. RNW's ratio, which is at a low of 0.88, raises red flags about the company's short-term liquidity situation.

Institutions hold roughly 55.6% of RNW shares. Of the 96 institutional holders, 44 have decreased their positions in the stock. Moreover, 20 institutions have sold out their positions (1,628,328 shares).

However, Wall Street analysts expect the stock to reach $8.63 in the next 12 months, indicating a potential upside of 37.2%. The price target ranges from a low of $8 to a high of $9.25.

Street expects RNW’s revenue for the fiscal third quarter ending December 2023 to come at $188.79 million, while EPS is expected to be negative at $0.18.

Bottom Line

The imminent growth of the renewable energy sector presents a promising landscape, and RNW is strategically situated to capitalize on this burgeoning potential. With a robust pipeline of projects, a rigorous approach, and a dedication to innovative solutions, RNW spearheads the progressive shift toward renewable energy in India.

RNW is a high-margin, low-capital turnover business, demanding significant reinvestment to sustain its market competitiveness.

Business growth typically necessitates financial investment, which can originate from sources such as retained earnings, issuance of new shares, or procuring loans. The ROCE mirrors the use of investment capital in the first two scenarios. In the case of borrowing, the resultant debt will augment returns without affecting the shareholders' equity, thus artificially enhancing the perceived ROCE.

In RNW’s context, prospective investors could tread cautiously and wait for a better entry point in the stock, given the high debt levels and low ROCE. Furthermore, the alarming Net Operating Debt/Adjusted EBITDA (TTM) ratio of 6.21x serves as a “red flag” and signals potential financial strain in the corporation's future.

Is Bank of America (BAC) Stock About to Plummet Into Collapse?

The U.S. banking sector is undergoing a significant transformation, echoing societal shifts that saw payphones and video stores disappear into obsolescence. The silent erosion of bank branches has been transpiring within the financial sector for over a decade, beginning in 2010 and intensifying in recent years.

According to the U.S. Federal Deposit Insurance Bureau (FDIC), large commercial U.S. bank venues have sharply declined from 8,000 in 2000 to 4,236 by 2021, further dwindling to 4,194 in 2022. Normative banking procedures have been remarkably altered within this period, as evidenced by the dwindling count of U.S. branch bank sites directly linked to mainstream banks.

As per S&P Global Market Intelligence, U.S. banks closed 149 branches and launched 49 in March, culminating in an overall 78,588 operational branches.

Should this declining trend in bank branch numbers sustain momentum, bank branches could disappear within the next ten years. The Self Financial estimates that the U.S. bank branches will dip dramatically from about 60,000 in 2023 to 15,660 in 2030, with numerical reductions continuing until the projected total elimination of bank branches by 2034.

The national shift is exemplified by the Bank of America Corporation (BAC), the nation’s second-largest bank by assets, mapping plans to reduce the extent of its physical footprint through the closure of several branches across the U.S.

According to the OCC's weekly circular, the Charlotte, North Carolina-based bank is actively pursuing authorization from the Office of the Comptroller of the Currency to close the branches. The applications were filed with the regulator on October 5

It has gotten into the act, closing 5% of its physical locations in Philadelphia. The anticipated closures will have a significant impact nationwide.

Let’s first understand the reason behind the closures and identify why this trend has seen a significant acceleration over the past few years.

Recent years have seen an accelerated rate of bank branch closures, amplified by changing consumer behaviors and evolving banking infrastructures. The advent of the COVID-19 pandemic and subsequent social distancing mandates in 2020 and 2021 catalyzed this trend. As foot traffic was reduced to near zero at local branches, there was a soaring increase in the adoption of digital products and banking services.

Banks are directing more resources toward enhancing their online platforms to meet customer demands for digital banking services. Consequently, the need for physical branches has diminished, prompting banks to adjust their physical footprints constantly. The practical implications include enhanced bottom lines fueled by cost savings and greater investment into technological advancements.

As banks become more digitally savvy, the industry anticipates a continuous drop in the number of branches in operation.

The banking industry's consolidation through mergers and acquisitions has also been instrumental in accelerating this trend. Banks often buy out rivals to reduce overlapping staff, services, and facilities expenses. The result is increased profitability, with the closure of redundant branches being key to these cost-saving measures.

Large regional and national banks predominantly lead branch closure as their extensive networks provide ample cost-reduction opportunities. Nevertheless, banks of all sizes are progressively steering their investments away from physical locations and toward digital platforms.

During BAC’s quarterly earnings call, CEO Brian Moynihan shared that the company's consumer business headcount had decreased from around 100,000 to roughly 60,000 – a decline that continues as digital banking experiences an increased adoption.

As of 2022, a clear preference for online banking among U.S. adults at 78% was evident, while only 29% preferred traditional, in-person banking. The closure of BAC branches is unlikely to impact individual accounts directly; the bank provides several channels that allow customers to access and manage their accounts, including online banking, mobile banking, ATMs, and customer service centers.

However, there is an underlying concern that BAC could alienate less tech-proficient customers like senior citizens or those with disabilities. In certain communities, the closure of neighborhood banks has caused substantial damage to local economies and heightened existing financial inequities.

The ramifications of banks disappearing from communities extend beyond convenience — for instance, residents are forced to commute further to make elementary transactions such as deposits or withdrawals. This could potentially instigate a shift of these customers to other banking institutions.

BAC might consider implementing measures such as a fee waiver for retained customers or an added fee for closing an account within a specified timeframe. Both strategies could deter clients from changing banks and concurrently generate some revenue.

Let’s look at other factors investors could consider before investing in BAC.

BAC’s investment holdings presently display considerable unrealized losses, falling short of competitive rates since 2007. As of June 30, 2023, paper losses on their debt securities exceeded $109 billion, which surged to $136.22 billion by the end of the third quarter.

With approximately $603.37 billion entangled in held-to-maturity securities, the bank's considerable holdings in these low-yielding assets curb its capability to amplify profits through cash investments in money markets or higher-return assets.

BAC is anticipated to witness lower overall yields on its securities book for the foreseeable future. However, analysts do not expect the necessity for the bank to liquidate these holdings, thus avoiding additional losses.

The bank's securities portfolio tilts heavily toward debt maturing after ten years. If the Federal Reserve implements another potential rate hike, the valuation of these holdings could decline further, possibly leading to a decrease in earnings from BAC's investments.

Conversely, if interest rates stabilize or gradually decline, share prices may improve, given that the long-term securities held by the bank are expected to increase in value.

Furthermore, BAC reported a 4.5% year-over-year increase in net interest income in the fiscal third quarter of 2023, exceeding analyst expectations. However, it still lags behind its competitors, JP Morgan and Wells Fargo.

BAC has amassed unrealized losses amounting to $131.6 billion on securities, and even with government guarantees, it does raise red flags. Yet, with over $3 trillion in assets and $1.9 trillion in deposits as of September 30, 2023, BAC has sufficient financial stability to weather the storm.

For the average bank customer, an unrealized loss of this magnitude may not be of immediate concern; however, it does present a potential issue for investors. Coupled with the advantage of its massive insured customer deposits, BAC has protection against the kind of deposit flights that regional banks have undone.

Furthermore, BAC’s stocks declined about 11% year-to-date but trades above the 50-, 100-, and 200-day moving averages. However, Wall Street analysts expect the stock to reach $33.76 in the next 12 months, indicating a potential upside of 14.2%. The price target ranges from a low of $27 to a high of $51.

Furthermore, several institutions have recently modified their BAC stock holdings. Institutions hold roughly 69.9% of BAC shares. Of the 2,771 institutional holders, 1,148 have increased their positions in the stock. Moreover, 146 institutions have taken new positions (37,323,335 shares).

Bottom Line

BAC continues to streamline its operations, shifting toward a digital business platform as it grapples with decreased branch traffic and escalating maintenance costs.

The strategic shift may leave customers without access to a local branch, highlighting critical considerations for the effectiveness of the traditional cash system and underscoring the potential impact on sections of marginalized society that depend heavily on physical banking services.

Additionally, the prevailing macroeconomic volatility and high interest rates, projected to persist, raise concerns about an increase in BAC's unrealized losses, coupled with the potential customer transition to treasuries or Money Market Funds.

Despite these challenges, shareholders can take solace in knowing that BAC's management seems to be performing skillfully. Additionally, the era of high interest rates has resulted in a net benefit so far.

Interestingly, BAC’s interest-bearing deposits reached $1.31 trillion, reflecting depositor trust in its financial standing.

Although investor sentiment slumped over the past year, BAC maintains an impressive balance sheet fortified by sturdy profitability. Furthermore, it offers an enticing dividend yield of 3.25% on the current share price.

So, it could be wise for investors to hold on to the stock and look forward to a gradual capital appreciation. The unrealized losses might be less daunting for long-term investors focused on continuous dividend payouts.

However, investors seeking steady revenue should proceed with caution. While BAC's forward dividend yield stands at an attractive 3.25%, exceeding the four-year average yield of 2.44%, it still falls short of the 3.78% sector median.

Considering prevailing circumstances, it may be prudent for new investors to wait for a better entry point in the stock.

Is CRISPR (CRSP) a Hidden Biotech Gem?

Shares of CRISPR Therapeutics AG (CRSP) have gained more than 40% over the past three months against the industry’s decline of nearly 11%. Moreover, the stock has surged more than 80% over the past month.

The gene-editing stock continues to enjoy accelerated momentum from a key regulatory approval. On November 16, CRISPR Therapeutics and its partner, Vertex Pharmaceuticals Incorporated (VRTX), announced that the United Kingdom-based Medicines and Healthcare Products Regulatory Agency (MHRA) granted conditional market authorization for CASGEVY™.

CASGEVY has been authorized for the treatment of patients 12 years of age and older with sickle cell disease (SCD) with recurrent vaso-occlusive crises (VOCs) or transfusion-dependent beta-thalassemia (TDT), for whom a human leukocyte antigen (HLA) matched related hematopoietic stem cell donor is unavailable. There are nearly 2,000 patients eligible for CASGEVY in the United Kingdom.

This represents the first regulatory authorization of a CRISPR-based gene-editing therapy worldwide and offers a new option for eligible patients waiting for innovative therapies. Notably, this approval made CASGEVY the first approved product in CRISPR Therapeutics’ portfolio.

Further, CRSP and VRTX’s Biologics License Applications (BLAs) seeking approval for exa-cel for treating SCD and TDT indications are currently under review in the U.S.

The U.S. Food and Drug Administration (FDA) granted priority review to the BLA filing for exa-cel in SCD, and the exa-cel filing in TDT indication was accepted for a standard review. A final decision on the BLAs for exa-cel in SCD and TDT indications is anticipated by December 8, 2023 and March 30, 2024, respectively.

In October, an FDA Cellular, Tissue, and Gene Therapies Advisory Committee appeared satisfied with CRISPR/Vertex’s regulatory filing on exa-cel in the SCD indication. This development will likely move the gene therapy closer to gaining potential marketing approval from the agency.

Both the SCD and TDT have significant unmet medical needs. A potential approval for exa-cel in the U.S. will be a major boost for CRSP and will likely drive the stock higher in the upcoming quarters.

Meanwhile, the company is developing CRISPR candidates to create next-generation CAR-T cell therapies for treating hematological and solid-tumor cancers. Clinical trials are ongoing for its CAR-T product candidates, CTX110 and CTX 112, targeting CD10 in B-cell malignancies.

In addition, CRSP is evaluating the safety and efficacy of CTX130 in two ongoing phase I studies for treating various solid tumors like renal cell carcinoma and certain T-cell and hematologic malignancies. VCTX211, an allogeneic, gene-edited, stem cell-derived product candidate for treating Type 1 Diabetes, has been undergoing clinical trial.

A clinical trial has also been initiated for CTX310, targeting angiopoietin-related protein 3 (ANGPTL3).

Let’s discuss several factors that could impact CRSP’s performance in the near term:

Deteriorating Financials

For the third quarter that ended September 30, 2023, CRSP reported nil total revenue, missed the analysts’ estimate of $7.96 million. That compared to revenue of $94 thousand in the same quarter of 2022. The company’s loss from operations came in at $132.41 million. Also, it reported a net loss before income taxes of $111.74 million for the quarter.

Furthermore, CRSP reported a third-quarter net loss of $112.15 million. The company’s net loss per common share came in at $1.41, narrower than the consensus estimate of $1.95.

The company’s cash, cash equivalents, and marketable securities were $1.74 billion as of September 30, 2023, compared to $1.87 billion as of December 31, 2022. The decline in cash of $128.60 million was primarily driven by operating expenses. During the third quarter, CRSP’s operating expenses were $132.41 million.

Unfavorable Analyst Estimates

Analysts expect CRSP’s revenue to significantly increase year-over-year to $104.31 million for the fourth quarter ending December 2023. However, the company is expected to report a loss per share of $0.22 for the ongoing quarter. For the fiscal year 2023, the company’s loss per share is estimated to be $3.46.

Further, CRSP’s revenue for the fiscal year 2024 is expected to decline 46.4% year-over-year to $148.08 million. Street expects the company to report a loss per share of $6.43 over the next year.

Elevated Valuation

In terms of forward EV/Sales, CRSP is currently trading at 15.16x, 370.6% higher than the industry average of 3.22x. The stock’s forward Price/Sales of 20.58x is 464% higher than the industry average of 3.65x. Additionally, CRSP’s forward Price/Book multiple of 3.34 is 40.5% higher than the industry average of 2.44.

Decelerating Profitability

CRSP’s trailing-12-month gross profit margin of negative 201.7% compared to the 56.62% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of negative 236.98% and 207.95% compared unfavorably to the respective industry averages of 5.29% and negative 5.75%.

Furthermore, the stock’s trailing-12-month levered FCF margin of negative 119.66% is lower than the industry average of 0.11%. CRSP’s trailing-12-month asset turnover ratio of 0.08x is 80.5% lower than the industry average of 0.39x.

Stiff Competition

Heightened competition remains a significant headwind, with several other biotech companies using the CRISPR/Cas9 gene-editing technology to address several ailments. The main competitors of CRISPR Therapeutics include Verve Therapeutics, Inc. (VERV), eGenesis, Editas Medicine, Inc. (EDIT), Caribou Biosciences, Inc. (CRBU), Intellia Therapeutics, Inc. (NTLA), and Beam Therapeutics Inc. (BEAM).

EDIT, developing its lead pipeline candidate EDIT-301, employs CRISPR gene-editing in a phase I/II study for SCD and TDT indications. A potential approval for the candidate developed by EDIT will likely pose increased competition for CRSP in the future.

Bottom Line

CRSP, one of the first companies formed to use the CRISPR gene editing platform to develop medicines and therapies for treating several rare and common diseases, continues to report losses. While the third-quarter loss was narrower than expected, the company’s revenue missed analysts’ expectations.

Despite its deteriorating fundamentals, shares of CRSP have been surging lately on the news of winning the first-ever regulatory approval for a CRISPR-based gene-editing drug, CASGEVY (exa-cel). Exa-cel is the first therapy to emerge from a strategic partnership between CRSP and VRTX for patients with severe sickle cell disease.

In the upcoming months, the FDA will decide whether to approve exa-cel. And this decision by the FDA will determine the course of the stock.

Given CRSP’s bleak financials, disappointing analyst expectations, low profitability, stretched valuation, and stiff competition, this biotech stock is best avoided now.

Is The Williams Companies (WMB) a Durable Dividend Stock to Buy?

The Williams Companies, Inc. (WMB), a leading energy infrastructure company, has been a reliable dividend stock over the years. The company has paid a common stock dividend every quarter since 1974 and has increased its payout in most years. The company’s dividend payments have grown at a CAGR of 6% since 2018.

The natural gas pipeline company currently offers an impressive 5.1% dividend yield, placing it toward the top end of dividend payers in the S&P 500 index, with an average yield of around 1.5%.

On October 24, WMB’s Board of Directors approved a regular dividend of $0.4475 per share or $1.79 annually, on the company’s common stock, payable on December 26, to stockholders of record at the close of business on December 8. This represents an increase of 5.3% from its fourth-quarter 2022 quarterly dividend of $0.425 per share.

Now, let’s discuss several factors that could impact WMB’s performance in the near term:

Mixed Financial Performance

The pipeline giant reported third-quarter 2023 adjusted EPS of $0.45, beating the analysts’ estimate of $0.41. However, this compared to the adjusted EPS of $0.48 in the prior year’s quarter. The decline in the bottom year was due to lower-than-expected contributions from two major segments - West & Gas and NGL Marketing Services.

Also, WMB’s adjusted net income came in at $547 million, down 7.6% from the same quarter of 2022. But year-to-date adjusted net income grew by $171 million over the previous year to $1.75 billion.

The company’s third-quarter 2023 Available Funds from Operations (AFFO) declined slightly by $11 million from the year-ago value to $1.23 billion, primarily due to lower distributions from certain equity method investments partially offset by higher operating results excluding noncash items. However, its year-to-date 2023 AFFO increased by 9.2% year-over-year to $3.89 billion.

William’s dividend coverage ratio for the third quarter was 2.26x (AFFO basis), compared to 2.40x in the same period in 2022. Its year-to-date 2023 dividend coverage ratio was 2.38x versus $2.29x over the prior year.

WMB’s third-quarter adjusted EBITDA grew marginally year-over-year to $1.65 billion, driven by the previously described higher services revenues, partially offset by lower upstream results, reduced marketing margins, increased operating costs, and lower JV proportional EBITDA. Year-to-date 2023 adjusted EBITDA rose by $414 million over the prior year to total $5.06 billion.

Further, the company’s quarterly revenue came in at $2.56 billion, missing the consensus estimate of $2.59 billion, mainly due to lower product sales. The top line also declined from the year-ago value of $3.02 billion.

As of July 30, 2023, the natural gas pipeline company’s cash and cash equivalents stood at $2.07 billion, compared to $152 million as of December 31, 2022. Its current assets came in at $4.26 billion versus $3.80 billion as of December 31, 2022.

2023 Financial Guidance

WMB raised its midpoint of guidance and now expects full-year adjusted EBITDA between $6.60 billion and $6.80 billion. Its growth capex guidance remains unchanged, between $1.60 billion to $1.90 billion. Also, Williams expects a leverage ratio midpoint of 3.65x, allowing the company to retain financial flexibility.

Optimizing Portfolio Through Divestments and Re-Investing in Assets Strategic to Footprint

During the third quarter of 2023, WMB sold its Bayou Ethane system for $348 million in cash, representing a last-12-month multiple over 14x adjusted EBITDA. The transaction comprises long-term ethane takeaway agreements, locking in flow assurance for Discovery and Mobile Bay producers.

The proceeds from the sale of Bayou will contribute to funding the company’s extensive portfolio of attractive growth capital investments, including transactions in Colorado’s Denver-Julesburg (DJ) Basin. Williams announced an acquisition of Cureton Front Range LLC, a Denver-based, growth-oriented midstream company focused on offering creative and transparent commercial solutions to oil & gas producers in the DJ Basin.

Cureton’s asset base consists of more than 260 miles of low- and high-pressure pipelines, 109 MMcf/d of natural gas processing capacity, 64,000 horsepower of compression, and has long-term contracts with blue-chip operators covering over 200,000 dedicated acres and two million acres of AMIs.

In addition, WMB agreed to purchase KKR’s 50% ownership interest in Rocky Mountain Midstream, resulting in 100% ownership of Rocky Mountain Midstream for the company.

These strategic acquisitions have a combined value of $1.27 billion, representing a multiple of nearly 7x expected 2024 adjusted EBITDA. Further, these two assets will boost purchase multiple through increased volumes on existing processing facilities and downstream NGL transportation, fractionation, and storage assets.

These transactions are anticipated to close by the end of this year, making WMB the third-largest gatherer in the DJ Basin and staying committed to the company’s strategy of maintaining top positions in its areas of operation.

Deals and Expansion Projects

On August 3, WMB announced the execution of an agreement with Chattanooga Gas, a subsidiary of Southern Company Gas, to provide certified, low-emissions NextGen Gas over a period of three years.

Through its Sequent Energy Management business, Williams has built a marketing platform to sell trusted low-carbon and net-zero NextGen Gas to utilities, LNG export facilities, and other clean energy users with the goal of helping customers meet their climate commitments.

WMB deploys its NextGen Gas platform across its vast infrastructure network, leveraging blockchain-secured technology to track and measure emissions via the aggregation and reconciliation of several sources of data to offer a path-specific methane intensity certification.

Debt Burden

On August 8, Williams priced a public offering of $350 million of its 5.4% senior notes due 2026 (the new 2026 notes) at a price of 100.181% of par and $900 million of its 5.3% senior notes due 2028 at a price of 99.886% of par.

The new 2026 notes are an additional issuance of WMB’s 5.4% senior notes due 2026 issued on March 2, 2023, and will trade interchangeably with the $750 million aggregate principal amount of such notes outstanding, resulting in $1.1 billion aggregate principal amount of such notes outstanding.

As of September 30, 2023, the company’s total current liabilities came in at $5.53 billion, compared to $4.89 billion as of December 31, 2022.

Impressive Historical Growth

WMB’s revenue and EBITDA have grown at respective CAGRs of 10% and 14% over the past three years. The company’s net income has increased at a CAGR of 131.3% over the same timeframe, while its EPS has grown at a 131.6% CAGR. In addition, its total assets and levered free cash flow have improved at CAGRs of 4.7% and 18.3%, respectively.

Disappointing Analyst Estimates

Analysts expect WMB’s revenue to decline 12.2% year-over-year to $2.57 billion for the fourth quarter ending December 2023. The company’s EPS for the current quarter is expected to decrease 12.4% year-over-year to $0.46. Moreover, Williams missed the consensus revenue estimates in three of the trailing four quarters.

Furthermore, Street expects WMB’s revenue and EPS for the fiscal year 2023 to decline 2.7% and increase 5% year-over-year to $10.67 billion and $1.91, respectively. For the fiscal year 2024, the company’s revenue and EPS are estimated to grow 1.5% and decrease 1.4% from the previous year to $10.83 billion and $1.88, respectively.

Bottom Line

While WMB’s fiscal 2023 third-quarter earnings surpassed analysts’ expectations, its revenue missed estimates. Despite reporting top-and-bottom-line declines from the prior year’s period, the company continues to have an upbeat full-year 2023 financial guidance.

However, analysts appear bearish about the natural gas pipeline company’s near-term prospects. Declining earnings and mounting debt could result in cuts to its now attractive dividend.

Given its bleak financials and disappointing short-term outlook, waiting for a better entry point in this stock could be wise.